my nameis mike and i own a test only smog station inc. in Feb.2013

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my nameis mike and i own a test only smog station inc. in Feb.2013 we hired a smog tech.just before we hired him i went to iran for 2 months to take care of my 9o year old dad.i came back mid april and my partner told me that the tech. was asking for cash only and i convinced him to take 350 in cash and 350 company check weekly.in june 2013 the tech. asked me to give him W2.i called my accountant and he advised me to give him a check for 500 each week and deduct 49 dollars for SS,EDD..etc. he refused to take the check because he needed a W2check with all the deductions listed and i agreed ten mins. later he suggested that he could take all his income in cash because he doesnt want to pay any taxes. i put up with all the abuse simply because i cant operate my bus. without a star tech. end of july he complains about the load of work in the shop.therefore i had to hire another smog tech.so the work would divided between both of them.from the first day they started fighting and the reason for fighting was the interference of the first tech. so i sat down and advised them not to fight specially in front of customers.fight continued again and i told them they could both work 3 days a week.my first tech. got offended,packed up his staff and left. i also told him that i have 3 other jobs lined up for him at other smog stations.since he left he has been threatening me to put me in jail and asking me to get 3 lawyers for workers comp. EDD and illegal smog tried to reason with him and pay him some money monthly till he finds a job he says i am suing you for 20 to 30 thousand dollars.i am stuck,don,t know what my options are my phone number (XXX) XXX-XXXX

Honestly, you could face some relatively serious fines and penalties for mis-classifying your employee as an independent contractor and failing to maintain workers' compensation insurance on him as you are required to do under the law. (It doesn't matter if you agreed on 1099. You have to classify an employee as an employee under the law and any agreement you have with the employee is inconsequential if he should have been an employee).

You also could be liable for back taxes due to your failure to pay payroll taxes on the employee as you are required to do under California and federal law.

It's difficult to estimate your total liability, but it could be in the thousands of dollars, and could very well exceed $10,000. There could be additional penalties if you failed to pay overtime as required under the law as well, or if you failed to pay wages that were owed at the time of termination. Of course all this depends on what EDD, the Franchise Tax Board, and the IRS could find out.

That said, it would be best to reach a settlement agreement with your former employee. However, you cannot actually have an agreement that prevents him from reporting his suspicions of illegal activity the appropriate agencies, so unless you can placate him that he will not report you, it would probably not even be worthwhile to reach a settlement.

All in all, the only good thing that will likely come from this experience is that you need to correctly classify employees, should pay them with statements including deductions, etc., and pay all your taxes in accord with the law. Otherwise, you can face serious fines and penalties and could be shut down if you fail to pay them.

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